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Tilling the Luxury Landscape

Giorgio Armani travels to China later this month to commemorate the arrival of his Guggenheim retrospective in Shanghai.

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MILAN — Giorgio Armani travels to China later this month to commemorate the arrival of his Guggenheim retrospective in Shanghai. It’s only the designer’s second trip to the country, but it’s unlikely to be his last.

Nor are other designers shying away from China, which many cite as the world’s fastest-growing market for luxury goods. The Chinese market was worth about $1.3 billion in 2005, according to research by Bain & Co. The consultancy expects the market to continue to grow at an annual rate of 50 to 70 percent.

Several forward-thinking brands entered China years ago, such as men’s brands Ermenegildo Zegna and Dunhill, as well as Louis Vuitton, Salvatore Ferragamo, Prada and Gucci. Chanel opened its first Hong Kong store back in 1979 when the city was still under British control. Others, like Dolce & Gabbana, Chloé and Calvin Klein, made more recent debuts in the country.

But regardless of how long they’ve been there, fashion houses are tracking China’s rapidly changing landscape, from mushrooming real estate developments to the evolution of shoppers’ sensibilities and the emerging wealth in cities beyond Hong Kong, Shanghai and Beijing.

“[Chinese customers] have to choose from an increasing number of brands, so they are forced to pay a lot of attention to a brand’s image profile…both nationally and internationally,” said Ferruccio Ferragamo, chief executive officer of Salvatore Ferragamo.

The company, which entered Hong Kong in 1988 and mainland China in 1994, has 30 stores in China and plans to open another 10 to 15 boutiques over the next two to three years.

Calvin Klein came to China much later, with a staggered rollout of its jeans, underwear, home collection and ck Calvin Klein businesses between 2001 and 2005. Tom Murry, president and chief operating officer of Calvin Klein Inc., said there’s “unprecedented evolution” of the retail industry in the Asian country.

“Chinese consumers are becoming more discerning and interested in foreign trends with the prevalence of the media and the continuously expanding spending power,” Murry said. “China today has over 60 satellite TV channels, 12 international publications, one of the highest Internet and mobile phone markets and a highly lucrative travel industry.”

Calvin Klein has 24 freestanding stores in China, between the denim, underwear and signature brand delineations, and the company will open another 80 to 90 stores over the next two years. Sales for the brand in China are seen rising 29 percent to $34.6 million this year, excluding revenue from watches, jewelry and fragrances.

Armani has also witnessed the evolution of the Chinese customer since it ramped up its Eastern expansion plans. Over the last two years, it has opened 15 units in China, where it now runs 39 freestanding stores and 11 shops-in-shops.

“With all of our lifestyle collections now present in China, we can see this development very clearly with a more sophisticated client coming into our Giorgio Armani and Armani Collezioni boutiques and a younger, more fashion-forward customer shopping in our Emporio Armani and AX Armani Exchange stores,” an Armani spokesman said.

Winning over customers also comes down to finding the right location. The Western concept of a luxury department store doesn’t really exist in China. Faced with few development options, brands opened stores in five-star hotels during the Nineties, selling small gift items like ties and scarves, and more recently branched out to carefully vetted locations in shopping plazas and malls, noted Bain & Co. partner Andrea Ciccoli.

“There isn’t a Via Montenapoleone in many Chinese cities,” said Ciccoli, referring to the Milanese luxury shopping destination.

Gucci brand president and ceo Mark Lee said today’s India reminds him of the China he visited 10 years ago.

“Everything always starts at the beginning with the luxury hotels,” Lee said. “Everyone is afraid to take a risk because you don’t want to go on a street and then find yourself next to McDonald’s.”

Lee said more “credible” real estate development has started up in China, but it’s still tricky to dodge get-rich-quick schemes and unreliable landlords. Case in point: Gucci is still canvassing locations for a Beijing flagship. In October, the brand will open its biggest Asian-Pacific store, a four-level Hong Kong flagship at the Landmark.

Different locations mean different clientele. China is a vast country with a population of 1.3 billion and luxury goods consumers represent little more than a tiny sliver of that figure. Nonetheless, cities and shopping districts have developed their own personalities, executives noted.

“It is important for us to respect that China is not one single market but a series of different markets,” said Helen Willerton, managing director of the Asian business of Chloé, which has a store on Shanghai’s Citic Square and in Beijing’s China World.

“The consumer in Beijing will stay longer in our boutique and spend more in a single purchase,” Willerton said. “It is critical that the staff are well trained on intricate details of our ready-to-wear pieces in order to be able to inform the customer. Shanghai consumers are currently buying the pieces which are well supported [through] catwalk or advertising, but are also opinionated and are no longer looking for that one complete look. They are adventurous.”

Different shoppers’ personalities are emerging within the same city.

“Plaza 66 in Shanghai continues to be the emblematic shopping destination for the younger fashion-conscious, more affluent consumer, while in the same city The Bund is now becoming a destination for the more sophisticated local consumer and for expatriates,” said an Armani spokesman.

Meanwhile, a new crop of customers is emerging in Chinese cities beyond Hong Kong, Shanghai and Beijing. Wealthy port cities like Hangzhou, where Dolce & Gabbana opened its first mainland store last year, are on the rise.

Executives cited great potential in seaside cities like Guangzhou and Macau, where Chanel and Prada are opening stores this year. In-land towns such as Chengdu and Xi’an are also generating buzz.

“The retail landscape of these cities is changing at an increasingly rapid speed and the quickly growing middle class demonstrates the booming growth potential,” said Calvin Klein’s Murry.

Gucci, which in January opened in the lesser-known port town of Qingdao, plans to open another three stores in China by the end of the year, bringing its mainland store count to 11.

“In the last two years, we’ve moved from the main cities,” Lee said. “We’ve definitely starting to infiltrate some of the secondary cities.”

Chanel is also penetrating the mainland through its beauty business. Although the brand has fashion boutiques in Hong Kong, Shanghai and Beijing, its biggest ambitions are for the cosmetics counter.

“Chanel has identified 40 major mainland cities that are being developed over a medium-term strategic plan by the cosmetics division,” said Robert Wilkins, Chanel’s managing director for greater China, adding that Chanel cosmetics already has a presence in 28 cities, including multiple sites in Shanghai.

Donna Karan is also plotting its expansion in China. This year, it plans to enter the country with the opening of six boutiques in Shanghai, Beijing, Chengdu and Hangzhou. The company intends to roll out 30 stores over the next few years.

Jeffry Aronson, Donna Karan International’s president and ceo, said the company wanted the brand to acquire retail “traction” elsewhere in Asia before moving into China. This month, the company relaunched the business in South Korea.

“We wanted to make sure that we understood as best as possible the local markets to make sure we could address its needs, while maintaining brand integrity,” Aronsson said. “We also wanted to make sure we understood the retail landscape to assure intelligent targeting of locations.”

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